02 August 2019

The Fed cuts interest rates

The US central banking system, the Fed, has cut interest rates by 0.25 percent after raising them several times in recent years. Trump had harshly criticised the rate increases. Commentators ask whether Fed chief Jerome Powell is bowing to pressure.

Trump will keep up the pressure

Now the rumours about the central banks not being independent will gain traction, writes La Vanguardia:

“There is the suspicion that the Federal Reserve had lowered the interest rates in response to strong pressure from Donald Trump. ... The Federal Reserve is therefore creating uncertainty about its future monetary policy - something that a central bank should never do. What does seem clear is that Trump will continue to exert pressure aimed at further cuts in the interest rates because he hopes that by boosting the economy this will increase his chances of being re-elected as President of the United States.”

Short-term thinking jeopardises world economy

Trump is abusing the Fed to the detriment of the rest of the world, Le Monde fears:

“'As usual Powell has left us in the lurch', Donald Trump let it be known, disappointed that interest rates weren't cut even more. His goal is to harness the Fed in the interests of his economic policy, whose weaknesses are now making themselves felt. But don't the trade war he has declared and the colossal budget deficit which he has further increased pose an even greater threat to global growth than what he sees as excessively high interest rates? In the short term Wall Street's performance and continued US growth are assured. But as with the last crisis, the rest of the world could end up paying the price.”

Weak economy tipped the scales

It's wrong to think that the Fed chief succumbed to pressure from the US president, L'Echo counters:

“Did Jerome Powell really cede to Donald Trump's wishes? There's no basis for such an opinion. The Fed took account of the fact that the US economy has reached the end of its cycle and that it's threatened by the ailing global economy. But he did not give in to Donald Trump's demands. What's more, Jerome Powell has warned that the Fed is not embarking on a series of interest rate cuts. As a result, all Trump could do was repeat that the Fed 'has once again left us in the lurch'.”

A breather for emerging countries

The Fed's move to lower interest rates will be a boon to many emerging economies, The Economist writes in delight:

“An American slump would hurt them, but so might a boom if it led the Fed to raise rates, sucking capital out of the developing world. The Fed's 0.25-percentage-point cut gives emerging economies welcome breathing space to ease their own interest rates and get back on a path to higher growth. ... South Korea has just lowered its benchmark rate for the first time in three years. Brazil cut rates to record lows this week. South Africa and Indonesia have loosened. Mexico is expected to ease soon. Easier money will help revive growth.”